DEEDS OF COMPOSITION AND DISCHARGE BETWEEN COPARTNERS AND THEIR CREDITORS UNDER THE INSOLVENT ACT OF 1869.

The law of the Province of Quebec, as it existed previous to the time when the Insolvent Act of 1864 came into force, did not empower a majority in number or value of a trader's creditors to force a minority to accept in full discharge a percentage on their claims the discharge of a debtor from liability in full, in consideration of a composition could only be effected by the consent of all his creditors. In trade, this provision of the law gave rise to great inconvenience, and begat in favour of recalcitrant creditors a system of fraudulent preference, pregnant with evil to the interests of commerce. The Insolvent Act of 1864 effected a change, but as its provisions are to a very great extent reenacted in that of 1869, it is unnecessary to refer to them at greater length.

The subject of Composition and Discharge is treated of in fifteen sections of the Insolvent Act of 1869, beginning at § 94 and ending with § 108.

§ 94 is in the following words:

"A deed of composition and discharge, executed by the ma"jority in number of those of the creditors of an Insolvent who are respectively creditors for sums of one hundred dollars and upwards, and who represent at least three-fourths in value of "the liabilities of the Insolvent subject to be computed in ascer'taining such proportion, shall have the same effect with regard "to the remainder of his creditors, and be binding to the same "extent upon him and upon them, as if they were also parties "to it; and such a deed may be invoked, and acted upon under "this Act although made either before, pending or after proceed"ings upon an assignment, or for the compulsory liquidation of "the estate of the insolvent; the whole subject to the exceptions "contained in section one hundred of this Act."

This section is evidently borrowed from the 192 section of the English Bankruptcy Act of 1861, which reads as follows:

"192. Every deed or instrument made or entered into between a debtor and his creditors, or any of them, or a trustee on their

behalf relating to the debts or liabilities of the debtor, and his release therefrom, or the distribution, management and winding up of his estate, or any such matters, shall be as valid and effectual and binding on all the creditors of such debtor as if they were parties to and had duly executed the same provided the fol lowing conditions be observed.

"1. A majority in number representing three-fourths in value of the creditors of such debtor, whose debts shall respectively amount to ten pounds and upwards, shall before or after the execution thereof by the debtor, in writing assent to, or approve of such deed or instrument."

There are six other conditions attached to the 192 section, but they have reference merely to procedure, so that it is unnecessary to set them out.

The similitude existing between the English Bankruptcy Act of 1861 and the Canadian Insolvent Act of 1869, does not end with the two sections cited. In the matter of proof on the joint and separate estates of partners, the provisions of those Acts resemble each other in a most striking manner.

Under the 145 section of the Bankruptcy Act of 1861 it was provided with respect to firm creditors as follows:

"But such creditor shall not receive any dividend out of the separate estate of the bankrupt until all the separate creditors shall have received the full amount of their respective debts." * The Insolvent Act of 1869 thus provides:

"64. If the Insolvent owes debts both individually and as a "member of a co-partnership, or as a member of two different co-partnerships, the claims against him shall rank first upon the "estate by which the debts they represent were contracted, and "shall only rank upon the other after all the creditors of that "other have been paid in full."

It must be admitted that the clause in the English Act is much more comprehensible than § 64, just given, for it is diffi cult to see how a separate creditor can rank on a joint estate after its creditors have been paid off, ere the accounts of the partners have been settled, when, as a matter of course, each partner's share of the balance falls into his separate estate.

By § 98 of the Insolvent Act of 1869, it is provided that: "The consent in writing of the said proportion of creditors to

B. L. C. Act, 1849, § 140.

"the discharge of a debtor absolutely frees and discharges him, "after an assignment, or after his estate has been put in compul"sory liquidation, from all liabilities whatsoever (except such as "are hereinafter specially excepted) existing against him and prove"able against his estate, which are mentioned or set forth in the "statement of his affairs exhibited at the first meeting of his credi"tors, or which are shewn by any supplementary list of creditors. "furnished by the Insolvent, previous to such discharge, and in "time to permit of the creditors therein mentioned obtaining the same dividend as other creditors upon his estate, or which appear "by any claim subsequently furnished to the Assignee, whether "such debts be exigible or not at the time of his insolvency, and "whether the liability for them be direct or indirect; and if the "holder of any negotiable paper is unknown to the Insolvent, the "insertion of the particulars of such paper in such statement of "affairs or supplementary list, with the declaration that the hol"der thereof is unknown to him, shall bring the debt represented "by such paper, and the holder thereof, within the operation of "this section."

The liabilities excepted are enumerated in

"§ 100. A discharge under this Act shall not apply, without "the express consent of the creditor, to any debt for enforcing "the payment of which the imprisonment of the debtor is per"mitted by this Act, nor to any debt due as damages for assault or wilful injury to the person, seduction, libel, slander, or mali"cious arrest, nor for the maintenance of a parent, wife or child, or as a penalty for any offence of which the Insolvent has been convicted, unless the creditor thereof shall file or claim there"for; nor shall any such discharge apply without such consent, (C to any debt due as a balance of account due by the Insolvent as an assignee, tutor, curator, trustee, executor or administrator "under a will, or under any order of court, or as a public officer; nor shall debts to which a discharge under this Act does not "apply, nor any privileged debts, nor the creditors thereof, be 'computed in ascertaining whether a sufficient proportion of the "creditors of the Insolvent have voted upon, done, or consented "to any act, matter or thing, under this Act; but the creditor "of any debt due as a balance of account by the Insolvent as "assignee, tutor, curator, trustee, executor, administrator or "public officer may claim and accept a dividend thereon from

"the estate without being, by reason thereof in any respect "affected by any discharge obtained by the Insolvent."

It may be laid down as a principle governing deeds of Composition and Discharge, that all the creditors signing the same must be placed upon a footing of equality the one with the other, and that the creditors who have not, should be entitled to reap from it the same advantages as those who have signed the deed.*

No difficulty, as a general rule, will be experienced where the Insolvent has not been in partnership with other persons; for the only exception to the general rule recognized was in a case where a creditor acting as surety for the debtor to the other creditors, was held entitled to receive some advantage over the others, in respect of his acting in that position;† but such a bargain must be apparent on the face of the deed. †

But when three or four persons trading in partnership either make an assignment or are put into insolvency, a difficulty presents itself in the event of any, or all, of the members wishing to effect an arrangement with his or their creditors, as the case may be.

In the Province of Quebec a partnership is dissolved by its insolvency, consequently once in insolvency and an assignee appointed, there can be no doubt but that the partnership is at an end.

It is the object of this paper to bring before the public the leading cases on the subject of deeds of composition between members of partnerships and their joint and separate creditors, and to establish the proper course to follow in the framing of the deed so far as regards the joint and separate creditors, and the composition rate agreed upon.

Upon the construction to be placed on certain words occurring in § 94 depends, to a very great extent, the meaning to be attached to the other sections of the title of Composition and Discharge

* Sills on Composition Deeds, p. 42; Walter v. Adcock, 7 H. & N. 559, 561; In re Rawlings, 9 Jur. (N. S.) 316, 317; Ilderton v. Castrique 9 Jur. (N. S.) 993, 994; Berridge v. Abbott, 13 C. B. (N. S.) 507; Clapham v. Atkinson, 4 B. & S. 722, 726, 731; Dingwall v. Edwards, 4 B. & S. 738. 747, 754, 758; Ex pte. Cockburn, 10 Jur. (N. S.) 573; Ilderton v. Jewell & al. 10 Jur. (N. S.) 748.

† Wells v. Hacon, 33 L. J. Q. B, 204.

Wood v. Barker, 1 L. R. Eq. 139.

§ Code Civil, art. 1892.

in the Insolvent Act of 1869. The words "the creditors" therein occurring are, in fact, the key-words of the whole title; they certainly are not limited in their signification; they comprise all persons who can be considered creditors of the Insolvent. The only question then to be decided is whether the creditor of a firm is also a creditor of the members of that firm. Under our law members of firms are jointly and severally liable for the debts of such firms to the firm creditors. It is perfectly true that the creditors of the individual members are entitled to be paid out of the proceeds of such member's private estate before the creditors of the firm to which such members belong can be paid thereout, but the liability of the members to their firm and the individual creditors is the same, the only difference is that one set is privileged on the private estate, the other is privileged on the joint estate. It cannot be urged that because the whole property (consisting entirely of moveables) of a person is pledged to a third party, that such debtor, though largely indebted to others, has no other creditor than the pledgee, and has no other liabilities than those existing in such pledgee's favour. Such a proposition would not be entertained for a moment, and therefore it may be laid down as incontestable that the creditors of a firm are also creditors of the members of such firm, and that the words "the creditors of the Insolvent" in § 94 of the Insolvent Act of 1869, mean the joint and separate creditors of such Insolvent.

The interpretation placed by the English Courts upon the words his creditors" and "the creditors of such debtor" in § 192 of the Bankruptcy Act of 1861, is precisely similar to that which it is contended should be applied to the words "the creditors of the Insolvent" in § 94 of the Insolvent Act of 1869.

As already mentioned § 94 has evidently been borrowed from § 192 of the English Bankruptcy Act of 1861. The intention of the Parliament of Canada was to copy as closely as possible the provisions of the English law on the subject of Composition and Discharge. Moreover the common law of the Provinces of Ontario, New Brunswick, and Nova Scotia is based on the English common law. The court of last resort from judgments rendered throughout the Dominion is the Privy Council. The decisions of the English Courts are received throughout the sister Provinces as of binding authority. Consequently it may not be out of place here to cite at length some of the dicta of English